New rules on battery hens could allow cut-price overseas competitors with poorer welfare standards to undercut the UK's egg producers, an influential committee of MPs warned on Friday.

The new rules stipulate better welfare conditions for battery hens, which most producers in the UK have now installed or are preparing to install, but the MPs are concerned that producers in the rest of Europe are simply flouting the rules. Around one-third of Europe's egg production will not comply with the new rules when they enter force in January, according to figures from the European commission, which is in charge of setting and reinforcing the new regulations. Eggs from other countries outside the EU would also probably not meet the rules.

Anne McIntosh, chair of the environment, food and rural affairs select committee, said: "The European commission has just not woken up to the impact that non-compliance with this legislation will have on egg producers in the UK and across Europe. UK egg producers have spent around £400m to improve conditions for laying hens. That money will be wasted and UK producers will be left at a competitive disadvantage if cheaper, illegal and non-compliant shell eggs and egg products can be imported to the UK from other European countries."

Under the new rules, called the Welfare of Laying Hens Directive, any battery farms with more than 350 laying hens will have to scrap their conventional cage systems after 1 January 2012. Instead, battery hens must be kept in improved cages, though these are still not improved enough for animal welfare campaigners.

The new cages, which are termed "enriched" under the directive, will have a little more living space per hen, with a floor area of 750 square centimetres per hen. This is a slight improvement on the current floor area allowed per hen, of about 550 sq cm – which works out at less than an A4 sheet of paper. "Enriched" cages also include a nest, a perching space, litter for pecking and scratching, and access to a feed trough.

Though the Department for Environment, Food and Rural Affairs argues that this is a "significant improvement", animal welfare campaigners would like to see much more. Alice Clark, poultry welfare specialist at the RSPCA, told MPs the new directive would not improve welfare "to the extent that we would like to see it".

She said: "There is no evidence that a cage system can meet the full behavioural and physical needs of the birds. One thing highlighted in a commission report a couple of years ago was that the enriched cage still did not allow for the full repertoire of the birds - particularly when you are looking at foraging and dust bathing, those kinds of behaviours cannot be fully carried out in a cage situation."

However, MPs supported the directive as a way of improving the welfare of caged hens. About half of the UK's eggs still come from battery hens, with the vast majority of the remainder free range. Of the 31m eggs consumed in Britain each day, about 80% come from the UK.

As a result of their fears of unfair competition, the MPs have urged the government to press for a trade ban on the export of eggs and associated products that have come from farms not complying with the new standards. They also want the EU to prosecute producers that do not comply.

McIntosh said: "Several member states have not provided data to the European commission about the preparedness of their caged egg producers and, thus far, the commission has failed to deal with the threat of large-scale non-compliance across the EU."

The Guardian contacted the European commission but did not receive a reply.